Baidu's financial performance continued to deteriorate in the second quarter as the Chinese internet titan works to remake itself into an artificial-intelligence company.

The Beijing-based company, once considered China's answer to Google, has been pouring money into AI, autonomous driving and chip design even as its bread-and-butter advertising business has continued to shrink. These investments have been slow to show results: Its net profit more than halved for the third consecutive quarter, while revenue has declined for more than a year.

On Tuesday, Baidu reported a 68% drop in second-quarter net profit to 2.32 billion yuan, equivalent to $344.2 million. Revenue came to 31.325 billion yuan, down 4.2% from a year earlier.

Analysts had expected net profit of 2.82 billion yuan on revenue of 31.34 billion yuan, according to a FactSet consensus estimate.

The soft showing comes as Baidu's Hong Kong-listed shares have shed more than a fifth of their value this year, underperforming the broader market as the company's legacy business continued to drag its outlook. Investors, meanwhile, are keeping a close eye on the listing progress of its chip unit, Kunlunxin, expected in Hong Kong within this year.

Baidu is pinning its hopes on its core AI-powered business, which the company said continued to account for half of general business revenue.

Fitch Ratings last week downgraded its long-term issuer default rating on Baidu to A-minus from A, citing the structural decline in the company's search ad business. It said it also expects emerging AI search and competing chatbots to weigh on Baidu's search business monetization. The company's lower profitability also reflects a weakening legacy business and relatively lower margins for its nonmarketing business, Fitch wrote in a note.

Baidu is facing stiff competition in China from tech titans such as Alibaba and ByteDance, as well as startups like DeepSeek and Moonshot AI in AI sector.

For the three months ended June, Baidu's core AI-related business generated 25% revenue growth year over year, though the figure declined 8% from the prior quarter. Demand for compute power remained strong in the second quarter, Citi analysts said before the results.

Our AI-powered business is now "firmly established as the core of Baidu," said Robin Li, the company's co-founder and chief executive. "We are strengthening the foundations for our next phase of AI-driven growth."

The company's American depositary receipts fell 5% in premarket trading.